Economics

Economics

After a hard 2005 for ad pages, many in the news magazine business were hoping for a rebound in 2006. It didn’t happen.

For most of the magazines we examine, 2006 was a year with marginal gains in pages of 2% or less. The exceptions were the New Yorker, which stood out for having a particularly bad year, and National Journal, which had an unusually good one.1

Ad pages over all declined ever so slightly — a tenth of a percent — among the 250 publications that list with the Publisher’s Information Bureau. Early in the year there was some hope that improvement on Wall Street might translate to the industry, but by the year’s end the hope had vanished.2

Some analysts also suggest that the industry is becoming less tied to economic cycles than to the changing media landscape. According to the Veronis Suhler Stevenson Communications Industry Forecast, the slowing in ad revenues for magazines as a whole that started in 2005 will continue as people and advertisers divert their attention to other media.3

With continued declines expected in both ad revenues and circulation, Time magazine will offer advertisers the opportunity to figure ad rates by counting overall readers, not just subscribers, and cut its ad rates. But the test for all the titles may be how well they handle moving to the Web, something magazines have been slow at doing. (See Digital.)

The News Titles

The news magazines largely follow the advertising trends of the industry overall, with few exceptions.

One of those exceptions was the New Yorker. Even as it picked up readers, its ad pages dipped by nearly 13% in 2006 — and that followed a 3% drop in 2005. Even dollars, which usually at least appear to be up because of the way magazines design their rate cards to show steady increases, were down 5.2%.4

There are a few possible reasons for the declines. The magazine’s highly successful publisher, David Carey, stayed within the Conde Nast empire, but changed publications — moving over to aid the launch of the company’s new business magazine Portfolio. And in an age of specialization and niche advertising — especially with the Web — the more generalized content of the New Yorker may not be as appealing to advertisers. If so, the magazine may be in for some tough times.

It should be noted that while this report cites ad dollars, those numbers are not as reliable a measure of financial success as pages. Total dollars are figured by multiplying pages by rates on each title’s ad card, and the cards are notoriously inaccurate. Experts in the industry say ad revenues in reality are often about half what the magazines report them to be. Thus despite figures showing healthy increases year-in and year-out, some titles are not profitable.

At the other end of the spectrum was National Journal, the boutique policy journal published by David Bradley. It saw a 13% increase in ad pages in 2006. (It should be noted that the publication has less than half the ad page of the other, larger titles we track, including the New Yorker.) Total dollars were up even more, 18.9%. Part of the success may be linked to the 2006 election. The mid-term vote generated huge media and voter attention down the stretch as people realized that it could end up being exceptionally meaningful.5

Elsewhere, the biggest titles — Time, Newsweek and U.S. News — saw essentially flat trajectory in ad pages. Time’s pages were up .8%, while Newsweek’s were up a scant .1%. U.S. News rose slightly more, 1.9%.6

But again, after 2005 when all three the titles were down — Time and Newsweek by double digits — it was hard for the titles to feel good about 2006. In total dollars, regarded as the less meaningful measure, all the titles at least reported more respectable numbers. Time’s dollars were up 4.7%, Newsweek’s 2.2%, and U.S. News’s 4%.7

Among the other titles we watch, The Economist posted minimal gains in pages — up 1.1% — but a much larger increase 16.7% in reported ad dollars. How to explain the big jump? One possibility is that the magazine has been adding subscribers at a good clip in recent years (see Audience) and at some point those new readers turn into higher ad rates.8

The same might be said for The Week, which actually caps the number of ad pages in every issue to keep its content/ad ratio constant. It added only four pages in 2006 — a .7% increase — but reported a 34% increase in ad revenues. Again the growth in ad revenue is attributed to the magazine’s growing subscriber base.9

The Atlantic Monthly and Jet were both largely flat in pages — the former down 1% and the latter up 1% — but the Atlantic reported an increase of 16.6% in revenue on its drop. That figure seems high for a publication losing readers, though perhaps the richer demographic it’s reaching (see Audience) helps boost profits. Jet, meanwhile, reported a more restrained ad dollar increase of 3.8%10

That’s one year’s data. But looking at ad dollars, and particularly pages, over time shows how things have soured for the Big Three titles since the late 1990s.

Even with the slight improvement over last year, Time’s ad pages are down in the territory they occupied in the early 1990s. Newsweek’s are down to where they were in 2001, of the year of 9/11. The numbers for U.S News look slightly better, but only because the magazine has had such a bad run lately — from 1988 to 2000 it had more ad pages every year than it did in 2006.

And the numbers for the other news titles aren’t very good either. From 1988 to 2002, The Economist had more ad pages every year than it did in 2006. The New Yorker’s 1,937 ad pages are the lowest total we have seen in all the years we have on record back to 1988.11

Despite an occasional good year here or there, the trend for the news titles is not a sunny one. The numbers have looked especially gloomy as broadband Internet use has taken off. In November 2003, some 35% of online users were getting online through some high-speed connection. By the beginning of 2006, it was 61%. The economic outlook for magazines is not clear, but it looks as if it could be uncomfortable even for some of the biggest, oldest titles.12

That was, in part, what was behind Time’s announcement in late 2006 that it was looking to change the way it measure its audience, cut its ads rates 19% and bump up its cover price.13

The Changing Picture of Magazine Economics

If Time wants to measure its audience by readership rather circulation, how would that work? The magazine plans to work with Mediamark Research’s new Issue Specific Accumulation study, which surveys 2,500 adults each week online and asks them whether they have read specific issues of magazines. It will only measure the print versions of them for now, though Time says it sees this as the beginning of measuring its total online and print audience. The approach is an Internet version of the way Mediamark does its annual reader survey with data on specific issues of the titles. The goal is to give the magazines and their advertisers a better idea about which cover issues attract readers, with data that are solid enough to replace circulation figures.

The news that Time was raising its cover price is significant as well (particularly if the increase bleeds over into subscription prices) because it will increase the share of Time’s revenues that come directly from readers. Some skeptics wonder whether the move is mostly a gimmick — an attempt by Time to lure readers with deeper discounts on subscriptions. Time, however, says the cover price increase comes as it is making a concerted effort to cut discount subscriptions from its rolls. It has trimmed its rate base by 750,000 subscribers (see Audience) many of which it says were brought in through third-party discount subscription sellers. The move also gained extra weight when Newsweek raised its cover price to match Time’s. Time’s cover price increase (combined with the rate-base cut) suggests that it may be moving toward to the British model of magazine funding — readers pay a premium price, so circulations are smaller but ultimately from more loyal and generally wealthier readers.

Time may also be turning to a two-tier revenue strategy, that is, selling different news products. The magazine will be charging more for its hard-copy product, but at the same time editors say they plan to rely more heavily on Time.com for breaking news. Currently, at least, Time.com is a free site, which receives revenues only through advertising, and online ads are known to be worth a small fraction of print ones. The result could be two different products that essentially tap separate revenue streams. There will be the shrinking print side, increasingly a weekend summary of the news for which readers will have to pay more than they once did. And a growing free online side, which will offer more in the way of breaking news and generate only ad revenue.

Right now Time.com is extremely light on advertising, a situation that could change as the site is leaned on more heavily for readership.

If there is a danger in such an approach it may be the potential for diluting a weekly’s brand. Will the Web’s ad-only revenue stream generate enough money to make up for the losses the magazine will experience with its rate-base cut? Will one side, say print, be forced to subsidize the other and for how long?

Those are some serious questions that will be answered in the next few years. Time’s experiment — an experiment not by a small title, but the industry leader — is important.

A Look at the Ads in the News Titles

One method of learning about the economics of a magazine is to examine where the advertising comes from. That offers some reflection, among other things, of the diversity of a magazine’s economic base, its vulnerability to change, and some sense of how Madison Avenue views the publication.

A look at ads in some of the news titles in 2005 and 2006 shows some major differences.

The biggest change may be the decline of auto ads — not exactly a surprise. But if 2005 was a down year for such ads, 2006 was dreadful. The Publisher’s Information Bureau found that auto ad pages were down 14% in 2006 in all magazines.14

The good news for the news magazines, at least partly good news, is that other advertisers, it seems, have filled the gaps — particularly banks and other financial companies and computer and other technology companies. Why might that be only partly good news? Because finding out what magazines charge for ads is difficult, and if the decline in auto ads has reduced competition for magazine ad space, the magazines might be selling those pages at reduced rates.

What follows is a look at the ads in three different kinds of news magazine: Time (America’s first news weekly), The Economist (the growing foreign import that focuses on recapping the week’s events) and the New Yorker (the longstanding literary weekly that has developed a news bent). For each we compared issues from the week of September 25 in 2006— the week that corresponds with our digital content analysis (see Digital). 15

The two biggest ad buyers in Time were computer and electronics companies (14 pages of ads) and banks and financial companies (12 1/3 pages). Both those totals were more than double the tallies from 2005. But car ads fell by about half, to 5 pages in 2006 — including one from German sportscar manufacturer Porsche—from 9 pages in 2005.There was also a big package of ads in the back of the 2006 issue marking “Life Insurance Awareness Month” — 7 pages from a non-profit life insurance group and 8 pages from various insurers. Other big advertisers were drugs and pharmaceuticals (11 pages), clothes and fashion (4 pages) and books and media (4-plus pages). The magazine had a whopping 87-plus pages of ads in the 110-page issue.

The Economist also leaned heavily on banks and finance for ads in 2006, carrying 13 pages compared with 7 pages of such ads in the 2005. There were differences from Time, though, in the ads. While many of Time’s ads were for things like credit card companies, many of The Economist’s financial ads were more far-flung —for Credit Suisse and for the Qatar Financial Centre.

The other big ad drivers in the magazine are also a departure from what one finds in most U.S. news magazines — classified ads (14 ½ pages) for positions like representative of the Ford Foundation in Vietnam and for the Australian Secret Service. And there are 12 ½ pages of ads for educational courses leading to MBAs and other degrees in various locales around the world. That’s not to say there were no similarities with Time, however. Both magazines ran the same ad for the food giant ADM and Microsoft’s Windows mobile. There were 66-plus pages of ads in the 114-page issue of the Economist.

The September 25 issue of the New Yorker in 2006 was interesting because it was not a normal issue, but one devoted especially to “style.” And in a down year for ad pages for the magazine, a perusal of the issue’s pages shows the advantages of putting a specific focus on an issue. There are more than 39 pages of clothing and fashion ads here, far and away the largest ad buyer for the issue.

The next-highest advertising group, hotels and travel, has only 13 pages. And most of the fashion ads look less like ads than photo shoots — whether they are elegantly lit black and white or perfectly selected hues of green or grey. The focus on “style” might also explain why that issue of the New Yorker was the exception where car ads were concerned. It had more than 11 pages of car ads, more than twice as many as we saw in the 2005 issue. Some were not the usual advertisers, though; ads for Jaguar, Mercedes and Saab were all focused on design. The other big ad buyer was hotels and travel, which again featured upper-crust hotels like Renaissance, which had a four-page pull out, and Preferred. It was an up ad week for the New Yorker, with roughly 90 pages of ads out of 158 total pages.

Conclusion

The year 2007 could prove pivotal to the magazine industry and news magazines specifically. After a series of down years, there is no projected upturn on the horizon, and falling subscriber bases may be leading advertisers to look elsewhere to spend their dollars. The biggest news weeklies — and the New Yorker, which had a very hard year — may be the most vulnerable. They have broad audiences and do not offer advertisers the specific targeted niches they are increasingly interested in, and that they can reach on the Web.

Time’s experiment, using readers rather than subscribers to set ad rates, may prove an important step. It would allow the titles to further integrate their Web sites with their hard copies and perhaps make the magazines more appealing to advertisers. But the outlook for that experiment remains unclear.